The stock market has experienced unprecedented volatility in recent months, and this is likely to continue as the country officially goes into recession and COVID-19 cases increase across the country.
Amidst this market turmoil, only 6% of investors are making a smart move. According to a recent survey by Principal, that’s the percentage of people who plan to increase the amount they are investing as the market goes through this hectic period.
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Why is investing more now a smart move?
While the coronavirus caused the market to crash in March, April, and May, stocks rose. Stocks were on an uneven rise in June, rising earlier in the month, but sank as coronavirus cases began to rise nationwide and states began to roll back plans to reopen.
While the positive numbers of jobs in June have sent the market higher in early July, the fact is that the country is in recession and public health experts warn that things may get worse. If that happens, another market crash could be just around the corner.
With that fear in mind, you may be tempted to stay out of it because you don’t want to suffer losses. However, the reality is that recessions and market corrections generally provide unique buying opportunities that give you the opportunity to purchase stocks at bargain prices so you can maximize your returns. In fact, one of the best investors in the world, Warren Buffett, has advised to be “afraid when others are greedy and greedy when others are afraid.”
Of course, you may be tempted to stay on the sidelines not because you’re afraid of investing in turbulent times, but because you hope to buy into the fund after another collapse occurs. Unfortunately, no one can predict when that will happen, and if you wait, you may miss out on the good buying opportunities that exist right now.
However, investing more is not suitable for everyone
Investing during a recession can help you maximize your returns, but it’s not the right approach for everyone. Obviously, some people have no extra money to boost their investments right now, given their current financial situation.
Also, you should not start putting your money on the market if:
- You don’t have a solid investment strategy. You should only invest in things that you understand and you must make sure that you have confidence in your choices, so that you are not tempted to react and sell panic if things start to seem difficult.
- You don’t have an emergency fund. During a recession, it’s more important than ever to have cash saved for emergencies, so you don’t have to borrow and pay interest or raid your investment accounts, potentially selling at a loss to meet your short-term needs.
- You don’t want to commit to leaving your money invested for several years: While investing in a recession can maximize long-term gains, it can also lead to short-term losses. Unless you can leave your money invested for at least a few years to wait for any recession, don’t invest it.
Consider putting more money on the market if you can
If you have met your basic needs and are prepared to invest wisely and expect any possible recession, you can often make big profits by investing in a volatile market.
And while there is always a risk associated with any investment, long-term investors who have made the smart decision to buy additional shares during a recession will generally be happy about it in the future.
